"Then, hopefully, if we see some good recapitalization plans, some confidence will be restored. [Then] you would play the banks that have suffered the most, so the euro-zone banks, that would be the Spanish, the Greek and the Italian."
It’s also important that none of the major, international banking names in Europe will likely be failed. Alessandro Roccati ran his own stress tests on 46 players for Macquarie Securities.
He concludes that "only small banks will fail the stress test. There is not a single name among the large caps that will fail. The positive is that there is no systemic risk in the European banking sector."
Hedge fund manager Michael Browne, at Martin Currie, said that that stands to reason. "If any bank fails these stress tests, it means that the local regulator has been doing nothing for the past two and a half years," Browne said.
He added, "European banks have been substantially recapitalized over that period, and their balance sheets cleaned up. I expect a series of good results, and a series of opportunities here."
Local bigwigs across Europe are already leaking information about which zones have passed all their local players. I'll focus on three countries.
If the "Big 4" Greek banks have really passed, then the local stress tests must have been fudged. But world markets can totally ignore it.
The Greeks are already locked out of wholesale funding with the European Central Bank's [ECB] financing 20 percent of the system. Anyway, the IMF(International Monetary Fund) will conduct its own stress tests in Greece in September as part of its €100bn bailout.
It’s said that the seven state-run German banks being tested have passed. That would not surprise me. Apparently, the Landesbanken were allowed to test themselves.
"It’s like asking a heroin addict if they’re still using beams," concluded OliveTree's Chappell. But no matter, they’re not quoted. And there’s still up to €300bn in Germany’s Soffin rescue fund to "bung" their way.
The biggest—and potentially the most positive news of all—could be that all 27 Spanish banks being tested have passed. People like Martin Currie's Browne told me to trust the regulator: "The Spanish banking system has, in all honesty, in the quoted sector, sailed through this, because the Bank of Spain is a conservative, good-quality regulator."
Presumably it must also mean that Madrid’s efforts to shore up Spain’s 19 unquoted and opaque regional savings banks, called cajas, by forcing their consolidation are paying off in their projected new balance sheets.
If there is a general re-rating of Spain, MF Global's Kane knows where to head.